Mass Tort Litigation Blog

Mass Tort Deals: A Response to Ellen Relkin and an Open Invitation

Since I published Mass Tort Deals: Backroom Bargaining in Multidistrict Litigation last May, I’ve received a lot of private emails from lawyers in the trenches who agree with my diagnosis of the problems in MDL. As the book details, incentives within multidistrict litigation tend to skew toward insiders’ self-interest, not the public interest or plaintiffs’ interests. Left unchecked, self-interest can takeover. And there are no checks. Consequently, there is an urgent need to improve the mass-tort system and its inhabitants as a whole.

Of course, in writing the book, I knew there would be backlash, particularly from those ensconced within the system who have much to lose from any change in the status quo. And judging from the latest review of my book on Amazon, it appears I’ve struck a nerve.

It comes from Ellen Relkin, a plaintiffs’ lawyer who served as co-lead counsel in DePuy ASR; lead and liaison counsel in Stryker; and on the court-appointed executive committee in Ortho Evra, Yasmin/Yaz, and Biomet.

To begin, I’d like to thank Ms. Relkin for taking time to review the book.  I hope very much that it will lead to a dialog and a broader exchange of information, not just between the two of us, but between academics and practitioners more broadly.  As my mentor, Richard Nagareda, impressed upon me, ours is a field that is driven deeply by what judges and lawyers do in real time, on the ground, not by what academics say to one another in lofty towers.

It was with that in mind that I began writing what eventually became Mass Tort Deals, which Relkin colorfully dubs a “book parading as empirical research.” It is the culmination of six-years worth of data collection on all the products-liability proceedings pending on the MDL docket as of May 2013, and its Appendix boils down all of that data into 41 pages of tables. All of the documents that I collected are freely available to the public and word searchable here.  Whether you love, hate, or are completely indifferent to the book, you are welcome to make use of all of the data and documents without having to pay Pacer fees.

What to make of the data is, of course, open to various interpretations.  Mass Tort Deals reflects my conscious choices both about how to present data in an inviting, accessible way, and which case studies and anecdotes might best convey key points. Those choices are based not only on the raw numbers (which are all disclosed), but on many hours of interviews with attorneys and judges as well as reading hundreds of motions, arguments, and court transcripts. Lawyers and judges who lived those proceedings will, invariably, have different opinions about their strengths and weaknesses, as Relkin’s critique demonstrates.

That brings me to Relkin’s specific comments, which I respond to briefly below:

• “The book is biased.”

Unfortunately, I’m not sure what this means. I don’t represent any clients, I don’t consult for lawyers on either side, and my funding comes entirely from my university (no private grants, etc.). I do have a perspective and an opinion from doing extensive research, but I am about as neutral as they come. As Relkin notes, on the other hand, she served as lead counsel in some of the mass tort deals that I criticize and, one presumes, has profited substantially from them.

• “[T]he book criticizes and makes incorrect assumptions without ever interviewing the lead counsel . . .”

As noted, I did speak with a number of plaintiffs’ attorneys on background (including those in DePuy ASR).  Those lawyers asked not to be named for fear of retribution, which I describe in Chapter 3. Lance Cooper was the sole attorney who agreed to be interviewed “on the record.” Unlike the lawyers affected by, but not in control of the proceeding, lead lawyers’ positions tend to be apparent from reading the motions that they file and the arguments they make in a hearing’s transcripts.

Despite putting these proceedings under a microscope, however, some critical information just isn’t publicly available, as I note in the book’s Introduction.  The terms of most private settlements remain private, and even for those that are publicly available, it is rare indeed to find information on substantive outcomes—who gets what, in other words.

More frustrating still are the many sealed documents. (Reuters has echoed this same frustration in a series of articles on opioids and Propecia.) DePuy ASR was a particularly opaque proceeding in that regard. The leaders, for example, sealed their common-benefit fee and cost awards (motions, orders, etc.).  Why insist on secrecy in court-awarded attorneys’ fees?

This is one of the key concerns that I address in Mass Tort Deals: too little disclosure can lead to too much room for abuse of process.  The information that is available suggests that there is a systemic lack of checks and balances in MDLs that may benefit insiders like lead plaintiffs’ attorneys, at their clients’ expense. In short, proceedings should be more transparent—deciding issues in secret breeds mistrust.

To that end, if you have data on substantive outcomes (who, exactly, gets what), please share it with me. I would love to know more about how much money is paid out and to whom, how long it takes to administer claims, whether like plaintiffs are treated equally, how much money it costs to put dollars in class members’ hands versus plaintiffs in private settlements, etc.

• “The book overlooks litigation challenges in some of the cases including the enormous costs of trying complex pharmaceutical and medical device cases, especially those with mild to moderate injuries, general and specific medical causation challenges, preemption issues, learned intermediary challenges, among other difficulties in some cases.”

Relkin is correct in that this book is about the procedures used to resolve cases, not substantive tort law. But to the heart of her concern, I discuss costs on pages 24-25, general and specific causation on pp. 112, 116, and 210. And I emphasize the pros and cons of bellwether trials on pp. 107-110.

• “Ms. Burch incorrectly attributes lead counsel in the DePuy ASR settlement, incorrectly interprets and describes features of the settlement, overlooks an enormous and virtually unprecedented benefits of the settlement . . ., incorrectly claims that the Extraordinary Injury Fund awards were unknown when in fact the scheduled award amounts were listed in an appendix to the settlement agreements that have been and are still on-line, among other errors.”

The only concrete thing I can find to respond to here is Relkin’s claim about the Extraordinary Injury Fund.  As I observed on p. 140, the DePuy ASR settlements did estimate a claimant’s base award, but even after another search of the settlement’s website, I still don’t see any amounts actually paid out to clients listed anywhere.  Of course, it’s certainly possible that I’ve missed something.  So, here’s a link to the website if you’d like to dig in. 

• “The two unhappy clients she quotes from a New York Times article are certainly not a representative sample. Using that standard, one could go on ‘Rate My Professor’, and while finding many good reviews of Professor Burch, would find some students who gave her unfavorable ratings.”

Okay, I couldn’t resist. It appears the last posting I received on “Rate My Professors” was in 2011 and of the 8 total posts, I received 7 “Awesome’s” and 1 “Good” (which still wrote “Great prof”). (Personally, I’m partial to the one that said “Amazing teacher. Funny, pretty, witty, and just downright brilliant,” but hey, maybe I am biased.)

More to the point, writing the book did make me realize that I needed to hear directly from plaintiffs, hence the Procedural Justice Study that I began over a year ago. 

Relkin kindly mentions that “she would have been happy to share the many thank you notes from enormously grateful clients who fared very well,” so I hope that she and other plaintiffs’ lawyers will ask their Yasmin/Yaz and Ortho Evra clients to participate in the Procedural Justice Study as well as any clients they might have in the other covered women’s health proceedings: Pelvic Mesh, Talcum Powder, Mentor ObTape, Mirena, Norplant, Fen-Phen, Dalkon Shield, NuvaRing, Silicone Gel Breast Implants, Power Morcellator, Ephedra, Fosamax, Monat Hair Care, Rio Hair Naturalizer, Prempro, and Protegen Sling.

Please disseminate the survey link broadly to your clients; I absolutely want to hear from all of them.  By way of background, the study does not ask for any confidential information (settlement or otherwise); the basic info it seeks include things that plaintiffs can readily find in their complaint.  The study’s focus is on how plaintiffs feel about their experience with the justice system—the judges, the lawyers, etc. 

My aim in this is to update and expand upon RAND’s 1989 Perception of Justice survey by identifying what litigants care about in the MDL context.  I hope to hear from as many plaintiffs as possible (their names and any identifying information will be kept completely confidential).

Happy to hear from each of you, too. And if there are things I should know more about, consider this an open invitation to contact me.

Stanley Chesley Disbarred

Stanley M. Chesley, one of the leading mass tort lawyers of his generation, was disbarred today by the Kentucky Supreme Court (court's opinion here). Chesley played an important role in many of the biggest mass torts of the past forty years: the Beverly Hills Supper Club fire, tobacco, breast implants, fen-phen, Bendectin, Bhopal, Lockerbie, Catholic church sex abuse, MGM Grand Hotel, San Juan Dupont Plaza, and other mass torts, as well as numerous antitrust and securities class actions. He was disbarred for his involvement in an aggregate settlement of Kentucky fen-phen claims. The court found that the lawyers violated rules of professional conduct by taking fees in excess of what their fee agreement provided, by including an inappropriate cy pres remedy that advantaged the lawyers rather than the clients, and by failing to comply with the disclosure and informed consent requirements of the aggregate settlement rule.

The Kentucky diet drug settlement also led to the disbarment and imprisonment of Kentucky attorneys William Gallion and Shirley Cunningham, as well as criminal, civil, and ethics proceedings and penalties for several other lawyers. For earlier coverage of the Kentucky fen-phen settlement dispute, see here, here, here, here, and here.

On today's disbarment of Chesley, see these news accounts in the Lexington Herald-Leader, the Cincinnati Enquirer, and the ABA Journal.

HME

Sixth Circuit Affirms Kentucky Fen-Phen Convictions

On Tuesday, the Sixth Circuit U.S. Court of Appeals affirmed the convictions and sentences of William Gallion and Shirley Cunningham for their handling of a massive settlement of fen-phen claims. Here is the  Sixth Circuit opinion, and here are news accounts from Thomson Reuters and Bloomberg. The lawyers had been sentenced to 25 years and 20 years, respectively. The opinion provides interesting and useful background on the diet drugs litigation and settlement, and it offers a picture of how badly things can go when mass tort aggregate settlements are mishandled. Because the Daubert exclusion of defendants' expert was an issue on appeal, the Sixth Circuit referred to my trial testimony as an expert on behalf of the United States -- I don't know whether I should be offended or flattered that I was accused of espousing ivory tower ideals, but I take some solace in knowing that the court thought the ivory tower had it right.

HME

The Market for Specious Claims

S. Todd Brown (Buffalo) has posted a paper entitled The Market for Specious Claims on SSRN.  It promises to be an interesting application of the adverse selection problem to our favorite subject here at the Mass Tort Litigation Blog!  Here is the abstract:

Few problems are more disruptive to the efficient operation of comprehensive mass tort settlements than over-subscription, which, at times, appears to be fueled primarily by specious claims. In settlements with opt out rights, a flood of claims can generate a market for lemons, with the weakest claims submitting to the settlement and the strongest opting out and seeking recovery at trial or in private settlement. In binding settlements, they may result in a commons problem, requiring dramatic reductions in payment that effectively transfer recoveries from those with intrinsically strong claims to those with weak claims.

This Article evaluates the history of three mass torts where specious claim practices were uncovered and identifies common themes that reflect broader lessons about the potential for over-subscription. In particular, although commentators often focus on the incentives that drive claim recruiting, this Article explains that over-subscription has its origins in claim development incentives, which may be distorted by fixed settlement criteria and encourage practices that lend themselves to specious claim filings. This dynamic is particularly likely to generate specious claim markets for low or negative expected value claims. Moreover, the manner in which this process unfolds presents special difficulties for ethical enforcement and deterrence, suggesting that other mechanisms for controlling specious claim markets may be necessary.

ADL

The Trouble with All-or-Nothing Settlements

My new paper, The Trouble with All-or-Nothing Settlements, is now available on SSRN.  I presented it at last week's symposium in Kansas on "Aggregate Justice: Perspectives Ten Years After Amchem and Ortiz."  The theme of the conference got me thinking about the shift in mass dispute resolution.  The failed settlements in Amchem and Ortiz were driven by defendants' insistence on peace, and defendants today often demand similar comprehensiveness.  Much of the action, however, has shifted from settlement class actions to non-class aggregate settlements.  Rather than peace through Rule 23, defendants try to obtain peace by negotiating settlements with all-or-nothing clauses, mandatory withdrawal provisions, or other terms to ensure comprehensiveness.  Too often, however, such all-or-nothing settlements lead to ethical problems.  This paper is my attempt to unpack the various problems engendered by such deals.  Here's the abstract:

When defendants settle litigation involving multiple plaintiffs, they often insist that they will settle only if they obtain releases from all or nearly all of the plaintiffs in the group. Judges, lawyers, and academics largely accept the drive for comprehensive settlements as a given, and many embrace such settlements as a positive goal. All-or-nothing settlements, however, create uncommon pressures and opportunities for abuse. Exploring a number of recent mass settlements that have led to disciplinary proceedings, civil litigation, and criminal prosecutions, this article shows the pressures and opportunities that arise out of defendants' insistence on bringing all claimants into a deal.

The article describes seven types of ethical problems created by demands for fully inclusive settlements. First, all-or-nothing settlements create client-client and lawyer-client conflicts of interest. Second, such settlements exacerbate problems concerning the allocation of settlement funds, including incentives to misallocate. Third, they create a risk of strategic hold-outs as savvy clients may attempt to extort additional money by withholding consent. Fourth, they create an incentive for lawyers to keep settlement money in reserve as a slush fund to ensure full participation, leading to problems of misallocation and client deception. Fifth, they generate loyalty problems by pressuring lawyers to withdraw from representing non-settling clients. Sixth, they create special problems concerning clients’ informed consent to aggregate settlements. And seventh, they introduce a risk of collusion as the interest of plaintiffs’ counsel aligns with the defendant’s interest in getting every plaintiff to sign on to the deal. Although all-or-nothing settlements provide peace for defendants and value for claimants, the troubles they engender suggest that the current love affair with comprehensive settlements - evident in academic writings, judicial pronouncements, and defendant demands - should be tempered by a realistic appreciation of the ethical downside.

I'd be very interested in any comments readers may have.  If you have thoughts or suggestions either about the overall analysis or about any of the specific settlements discussed in the paper, please feel free to e-mail me directly or to comment on the blog.

HME

Fen-Phen Fee of $567 Million

The Third Circuit upheld a fee of $567 million yesterday in the In re Diet Drugs Products Liability Litigation case noting that the amount "through extraordinarily large, is not excessive."  Here's an excerpt of the Legal Intelligencer's story:

The ruling is a victory for attorney Michael D. Fishbein of Levin Fishbein Sedran & Berman, who argued in defense of the fee award to the 72 firms that had logged more than 350,000 hours on the case.

It was a setback for two lawyers who led the challenge -- Brian S. Riepen of Dallas and Raymond Valori of Weston, Fla.

Riepen argued that the process Bartle used in calculating the fee award lacked the transparency courts require in common fund cases.

Jordan disagreed, saying: "[T]he fee proceedings were amply transparent under our precedent. Indeed, it is difficult to discern what the District Court reasonably could have done to increase the level of transparency."

Riepen argued that Bartle should have considered and made public the class counsel's individual billing records, but Jordan said, "[W]e have held that courts need not always engage in that time-consuming process."

In a separate appeal, Valori had argued that he was unfairly forced to contribute to the fee award from the fees he had earned through clients who opted out of the fen-phen settlement -- despite the fact that he never took advantage of the joint discovery conducted by the class action lawyers.

Valori also argued that Bartle failed to make the proper findings to support his ultimate conclusion that the $567 million in fees was reasonable.

Jordan disagreed, saying Bartle had made a series of findings that amply supported the fee award, including the finding that the work of class counsel yielded a $6.44 billion settlement fund that benefited more than 800,000 class members.

ECB

Sixth Circuit Fen-Phen Decision on Statute of Repose

Drug & Device Law praises statutes of repose and discusses a recent Sixth Circuit Fen-Phen decision.

BGS

Kentucky Fen-Phen Lawyers Given Long Prison Sentences

Attorneys William Gallion and Shirley Cunningham Jr. were sentenced yesterday to 25 and 20 years, respectively, for defrauding clients out of millions of dollars in connection with a settlement of fen-phen claims.  They were ordered, in addition, to pay over $127 million in restitution and to forfeit $30 million to the government.  Both were already disbarred.  Although lighter than the prosecutors recommended, these sentences mean that Gallion and Cunningham will probably spend most of the remainder of their lives in prison; both men are in their 50s and the federal system does not allow parole.  The defendants plan to appeal.

According to this news report from the Louisville Courier-Journal, U.S. District Judge Danny Reeves said that both lawyers were guilty of "unbridled greed" and neither showed "a grain of remorse."  Had they taken what they were entitled to, each would have earned millions of dollars in legitimate fees, but Judge Reeves said that it “appears to the court that they just wanted more.”  Bloomberg reports that the judge stated that the sentences are intended to deter other lawyers from stealing settlement funds.

The case involved a settlement of over 400 fen-phen plaintiffs who had opted out of the nationwide diet drugs settlement class action reached by Wyeth (formerly American Home Products).  After thousands of plaintiffs nationwide opted out of the settlement class action, Wyeth proceeded to negotiate aggregate settlements with plaintiffs' law firms around the country.  In Kentucky, a state court had certified a fen-phen class action for litigation but Wyeth negotiated a settlement of the individual clients' claims on condition that the class be decertified.  The attorneys -- Gallion, Cunningham, and Melbourne Mills -- had individual retainer agreements with their clients that provided for contingent fees of 30% and 33%.  The government charged that the lawyers took far more than they were entitled to.  It charged that the lawyers lied to their clients about the settlement allocations, took millions of dollars in court-awarded fees in addition to their contingent fees, and took millions more to set up a foundation called the Kentucky Fund for Healthy Living that would pay them as salaried managers.  Mills was initially charged along with Gallion and Cunningham, but he was acquitted in an earlier trial where he successfully contended that he was too drunk to have been guilty of the crime.  According to the Bloomberg report, Gallion and Cunningham tried to avoid responsibility by arguing that they didn't understand what they were doing and were following another lawyer's advice:  "Lawyers for Gallion and Cunningham argued that they were innocent, inexperienced in handling large awards in class-action suits and made mistakes. They tried to blame Cincinnati lawyer Stan Chesley for many of the men’s decisions."

At the trial, I testified for the government as an expert on questions of civil procedure and legal ethics.  The case raised questions about the intersection of class actions and non-class aggregate settlements and about lawyers' duties in connection with class and non-class settlements.  The court, after a Daubert hearing, agreed with my analysis of the issues and disqualified the defendant's expert from testifying, finding his proposed testimony unreliable.  U.S. v. Gallion, 257 F.R.D. 141 (E.D. Ky. 2009).

In one of many odd twists, the case captured the attention of sports fans because Gallion and Cunningham were part owners of the champion racehorse Curlin.

HME

Pfizer to acquire Wyeth

Pfizer and Wyeth today announced that Pfizer will purchase Wyeth for $68 billion, as anticipated.  The deal, as today's NY Times article notes, stands out in the current financial climate:

The deal not only create a pharmaceutical behemoth but would be a rarity in the current financial tumult: a big acquisition that is not a desperate merger of two banks orchestrated by the government.  It will also be the first big merger backed by Wall Street in months. While credit has been notoriously tight of late, five banks have agreed to lend Pfizer $22.5 billion to pay for the deal. Pfizer, which has roughly $26 billion in cash, would finance the remainder through a combination of cash and stock.

Every major pharmaceutical company has experienced mass tort litigation, and these two are no exceptions.  Pfizer defended the Celebrex and Bextra litigation, and earlier the Bjork-Shiley heart valve litigation.  Wyeth (formerly American Home Products) took a huge hit in the fen-phen litigation, and more recently has faced mass litigation over its Prempro and Premarin hormone replacement therapy products.

Last May, Amy Schulman joined Pfizer as its general counsel.  Before going in-house at Pfizer, Schulman headed the mass tort practice at DLA/Piper and was lead counsel for Pfizer in the Celebrex-Bextra litigation.  In December, Pfizer hired Bradley Lerman as its litigation chief.  As a partner at Winston & Strawn, Lerman defended McDonald's in the fast food litigation and worked for Phillip Morris in the Engle tobacco class action.

HME

Lawyer's Conviction Affirmed for Fen-Phen Settlement Fraud

Article in the Clarion Ledger -- Fen-Phen conviction upheld: Vicksburg lawyer bilked company out of $6.7M, by Jerry Mitchell. (H/t to Pharmalot.)  Here's an excerpt:

The 5th U.S. Circuit Court of Appeals on Monday upheld the conviction of Vicksburg lawyer Robert Arledge, convicted of bilking the drug company Wyeth of more than $6.7 million over the diet drug Fen-Phen.

"We find that there was sufficient evidence to support the jury's verdict as to all counts," the court wrote.

U.S. District Judge David Bramlette sentenced Arledge to six years in prison for knowingly allowing clients to make claims of about $250,000 each for health complications although they had no legitimate reason.

Arledge was the sole lawyer charged in the joint Internal Revenue Service-FBI investigation of fraudulent claims in a $400 million settlement fund and subsequent settlement funds involving the use of Fen-Phen - a prescription diet drug pulled from the market in 1997 after research revealed it could cause heart problems.

BGS

Lawyers Involved in Kentucky Fen-Phen Settlement Disbarred

Brett Barrouquere of the Associated Press reports that the Kentucky Supreme Court disbarred William Gallion and Shirley Cunningham, Jr. from practice after mishandling money in the Fen-Phen settlement.  The full story can be found here.

ECB

Brickman Against Screening

Lester Brickman (Cardozo) has just posted an article on SSRN entitled The Use of Litigation Screenings in Mass Torts: A Formula for Fraud?"  Here is the abstract:

Lawyers obtain the "mass" for some mass tort litigations by conducting screenings to sign-up potential litigants en masse. These "litigation screenings" have no intended medical benefit. Screenings are mostly held in motels, shopping center parking lots, local union offices and lawyers' offices. There, an occupational history is taken by persons with no medical training, a doctor may do a cursory physical exam, and medical technicians administer tests, including X-rays, pulmonary function tests, echocardiograms and blood tests. The sole purpose of screenings is to generate "medical" evidence of the existence of an injury to be attributed to exposure to or ingestion of defendants' products. Usually a handful of doctors ("litigation doctors") provide the vast majority of the thousands and tens of thousands of medical reports prepared for that litigation.

By my count, approximately 1,500,000 potential litigants have been screened in the asbestos, silica, fen-phen (diet drugs), silicone breast implant, and welding fume litigations. Litigation doctors found that approximately 1,000,000 of those screened had the requisite condition that could qualify for compensation, such as asbestosis, silicosis, moderate mitral or mild aortic value regurgitation or a neurological disorder. I further estimate that lawyers have spent at least $500 million and as much as $1 billion to conduct these litigation screenings, paying litigation doctors and screening companies well in excess of $250 million, and obtaining contingency fees well in excess of $13 billion.

On the basis of the evidence I review in this article, I conclude that approximately 900,000 of the 1,000,000 claims generated were based on "diagnoses" of the type that U.S. District Court Judge Janis Jack, in the silica MDL, found were "manufactured for money."

Despite the considerable evidence I review that most of the "medical" evidence produced by litigation screenings is at least specious, I find that there is no effective mechanism in the civil justice system for reliably detecting or deterring this claim generation process. Indeed, I demonstrate how the civil justice system erects significant impediments to even exposing the specious claim generation methods used in litigation screenings. Furthermore, I present evidence that bankruptcy courts adjudicating asbestos related bankruptcies have effectively legitimized the use of these litigation screenings. I also present evidence that the criminal justice system has conferred immunity on the litigation doctors and the lawyers that hire them, granting them a special dispensation to advance specious claims.

Finally, I discuss various strategies that need to be adopted to counter this assault on the integrity of the civil justice system.

ADL

Update on Kentucky Fen-Phen Lawyers' Trial

The Wall Street Journal Law Blog reports that Judge William Bertelsman declared a mistrial in the Kentucky lawyers' fen-phen case after the jury reported that they were "hopelessly deadlocked." Here's an excerpt:

Cunningham, Gallion and a third defendant, Melbourne Mills, who was acquitted, were on trial in federal court for allegedly bilking their clients out of $65 million of a $200 million settlement over alleged injuries caused by the diet drug Fen Phen.

But things seem to be looking up for Gallion and Mills. The jury foreman from the first trial, Donald A. Rainone, told the Lexington Herald-Leader that the majority of the jury — including himself — thought that others involved in the 2001 settlement, approved by Boone Circuit Court judge Joseph “Jay” Bamberger, should’ve been charged as well. (Rainone, who declined to name names could’ve been referring to Judge Bamberger, who at the first trial testified to being “embarrassed” by the way he handled the underlying Fen-Phen suit, or Stanley Chesley, the well-known Cincinnati lawyer who negotiated the settlement for a fee of $20 million.)

ECB

New Details on the Kentucky Fen-Phen Settlement

Beth Musgrave of the Kentucky Herald-Leader has the latest report on Kentucky fen-phen attorneys William Gallion, Shirley Cunningham Jr. and Melbourne Mills Jr., who are accused of taking more than $65 million from their clients in the diet drug settlement.  Here's an excerpt:

Three lawyers for American Home Products had testified earlier in the trial that the $200 million settlement was for only 440 people and was not meant to settle future claims brought by people who had taken fen-phen but were not part of the 2001 Boone Circuit Court lawsuit. The three lawyers have argued that some money from the settlement had to be set aside in case other people who took fen-phen came forward with other lawsuits.

When no one came forward, the lawyers put some of the money in a non-profit and the rest went to legal fees and expenses. The lawyers on the case received approximately $105 million, their clients received $74 million and the remaining money went into a non-profit.

But Robbins, after reviewing transcripts, depositions and court documents related to the 2001 case, said he doesn't understand how American Home Products could say the $200 million settlement was strictly for the 440 clients. Documents indicate that American Home Products said the 440 people who took the drug were entitled to $30 million to $50 million.

Instead, the pharmaceutical company paid $200 million. Why would the company pay an additional $150 million, if it was not to pay for future claims?

"They were buying peace in Kentucky," Robbins said. Robbins will continue his testimony Tuesday. Gallion, who took the stand on Friday, is expected to return to the stand later this week.

The Wall Street Journal Law Blog also has an update:

Prosecutors allege that as part of the fraud, the three failed to tell clients how much the total settlement was for, threatened many with a fine if they told their family members about the settlement and also failed to tell many that some of the settlement money was going into a non-profit. The three Lexington-area lawyers deposited millions of the settlement money into their own accounts after the settlement was reached in 2001 and then later moved some of that money back into the settlement account after the Kentucky Bar Association issued a subpoena asking about the details of the settlement, the indictment alleges.

Robbins testified that the judge decides if and when clients are notified in a class action. “It is the judge’s responsibility to decide when notice should be given and what that notice should consist of.”

ECB

Fen-Phen Kentucky Lawyers on Trial

There have been several reports lately about the mishandling of Fen-Phen settlement funds in Kentucky. Here are two excerpts. The first is from the Wall Street Journal Law Blog:

There are many bizarre aspects of the story behind the three Fen Phen lawyers on criminal trial for alleging bilking their clients out of $65 million of settlement money. The most well-reported oddity is that two of the lawyers used settlement funds to invest in the race horse, Curlin. But how about their decision to donate $20 million of the $200 million settlement to a charitable fund — called the Kentucky Fund For Healthy Living — that they created and controlled, and for which they allegedly paid themselves about $150,000 each to manage?

That part of the case came to light yesterday, as Joyce Brown, a plaintiff in the Fen-Phen case, testified in federal court that she specifically opposed the charity idea. According to this report in the Herald-Leader, Brown testified that she phoned the law office of William Gallion (pictured, right), one of three lawyers now on trial, to express her opposition, but a woman told her that the charity plan was going through, and that she had no choice in the matter. Another plaintiff, Connie Centers, testified that no one discussed a charitable contribution with her.

The second is from the Lexington Herald-Leader:

A Lexington woman who was a plaintiff in a $200 million fen-phen class action settlement testified in federal court Tuesday that she specifically opposed plans by three lawyers in the case to donate leftover settlement money to charity.

Joyce A. Brown said that when she telephoned the Lexington law office of William Gallion to express her opposition, a woman on the phone told her that the charity plan was going through, and that she had no choice in the matter.

Another plaintiff, Connie Centers of Lawrenceburg, said no one ever discussed a charitable contribution with her.

Gallion and fellow attorneys Melbourne Mills Jr. and Shirley Allen Cunningham Jr. ultimately placed about $20 million of settlement money in a charitable foundation they created and controlled. They also paid themselves about $150,000 each to manage the fund, called the Kentucky Fund For Healthy Living.

Mills, Cunningham and Gallion are on trial in federal court for conspiracy to commit wire fraud in their handling of the settlement, which grew out of a class-action lawsuit they filed in Boone Circuit Court in 1998 against American Home Products, the company that marketed fen-phen.

Prosecutors allege that the defendants unlawfully pocketed millions from the settlement, defrauding their clients out of about $65 million.

ECB

Fen-Phen Attorneys' Fee Award

It looks as though payday has finally arrived for fen-phen attorneys. After nearly a decade of litigation, Judge Harvey Bartle III awarded plaintiffs’ lawyers from over 70 law firms $412 million for their efforts in litigating the Diet Drugs Product Liability Litigation. According to the National Law Journal, plaintiffs attorneys logged more than 578,000 hours (the equivalent of 24,000 days, or almost 66 years) of work on the litigation. As you may recall, the fen-phen settlement involved back-end opt out rights and a settlement that has endured at least seven amendments. Experts initially estimated 35,500 claims but just the back-end opt-outs exceeded 60,000 fen-phen users. Notable opinions on the settlement can be found at 2000 U.S. Dist. LEXIS 12275; 369 F.3d 293, 303 (3d Cir. 2004); and 226 F.R.D. 498 (E.D. Pa. 2005).

ECB

Kentucky Mass Tort and Class Action Litigation Committee

The Kentucky Supreme Court has created a committee to explore possible improvements in the handling of mass tort litigation.  According to the press release, the committee "will determine whether current court rules for attorneys and judges provide adequate safeguards against unethical conduct and whether rule changes may provide guidance to attorneys and courts dealing with complex litigation."  The appointment comes in the wake of indictments against several Kentucky lawyers charged with stealing client funds in fen-phen settlements.  Here's the Torts Prof post about the committee, with a link to a news account.

I met with the Kentucky committee in Frankfort last month, and enjoyed the opportunity to discuss with them the challenges of mass tort litigation and some of the ways in which rules of procedure and rules of professional conduct may be modified or sensibly interpreted to accommodate the demands of mass disputes while respecting core values of justice and attorney-client relationships.  It will be interesting to see what proposals, if any, the committee generates after exploring the possibilities.  It will be equally interesting to see how many of those proposals are ultimately adopted.

HME

Mediation in Kentucky Fen-Phen Settlement Scandal

Article in the Cincinnati Post about plans to mediate the dispute in which hundreds of fen-phen clients accuse their former lawyers -- Shirley Cunningham, William Gallion, Melbourne Mills, and Stan Chesley -- of defrauding them in connection with the aggregate settlement of their claims against Wyeth.  If mediation fails, however, plaintiffs' attorney Angela Ford is seeking a change of venue from Boone County to Lexington.  Here's an excerpt from the April 24 article by Shelly Whitehead, Fen Phen Suit Heads to Mediation:

The attorney for hundreds of people who say lawyers representing them in a suit against the diet drug fen-phen defrauded them will try to settle their differences in mediation sessions next month.  If that doesn't work, however, an attorney representing the more than 400 plaintiffs in the case wants the trial of their suit moved from Boone County, Ky., to Lexington. ...

In 2002, fen-phen maker American Home Products and more than 400 people who took the drug in Kentucky reached a $200 million settlement.  Cunningham, Gallion and Mills, the original attorneys for plaintiffs in the case, hired Chesley to negotiate that agreement.

The victims in that case wound up splitting $74 million and the lawyers and their associates got $106 million. The plaintiffs complained that was more than had been agreed upon, and hired Ford to represent them in an effort to recover some of that money.

A year ago, [Judge William] Wehr ruled the three main lawyers in the original case had misappropriated settlement money and breached their fiduciary duties. The Kentucky Supreme Court later suspended the licenses of that trio.  ...

If mediation between the parties - set for May 16 and 17 - fails to resolve that issue, the matter will go to trial, and a jury will determine how much money the attorneys must return to the original plaintiffs.  ...

Wehr scheduled another hearing for May 31 at the Burlington courthouse to determine what, if any, progress has been made during mediation and how the case will proceed.

HME

Alleged Plaintiff Counsel Fraud in Connection with Fen-Phen Settlement Money

Interesting article posted on American.com -- Fen-Phen Zen: Some of the lawyers who committed massive fraud are finally being brought to justice, by Ted Frank of the American Enterprise Institute.  Overlawyered.com has a follow-up post on Stanley Chesley's connection.  Here's an excerpt from the Ted Frank article:

It’s the hoariest of Hollywood clichés: adventurers discover a treasure, and then let greed overwhelm them as they try to split the proceeds. Here, three Kentucky lawyers, William J. Gallion, Melbourne Mills Jr., and Shirley A. Cunningham Jr., managed to snag for themselves a share of a $200 million settlement with American Home Products (now known as Wyeth) for 440 clients who claimed to be injured from their use of the diet drug fen-phen. But the lawyers weren’t satisfied with the tens of millions of dollars their contracts with their clients would have paid them, and administered the settlement to leave their clients with only $74 million, a fraction of what they were supposed to receive.

A “charity” was established with $20 million of leftover fund proceeds, with the attorneys hired as directors for $5,000 a month. $27.7 million more of that $74 million may have been intended to be diverted; it was distributed to clients only after the state bar started sniffing around in 2002. Of course, none of this could have happened had the judge not approved the settlement as “fair and equitable”—but Judge Joseph F. Bamberger was himself being paid $5,000 a month from the same charity as a director. Bamberger’s former law partner was paid a $2 million fee even as he was buying a Florida house jointly with the judge. (Bamberger’s defense is that he approved the settlement without reading it. Let’s hear it for judicial oversight.)

Some of the greed is farcical. Cunningham spent a million dollars to endow a chair in his own name at Florida A&M Law School—and negotiated to sit in his own chair for a six-digit salary. A school audit, according to a report in the St. Petersburg Times, says he never did any work. There was possibly even intramural greed: Court filings claim that Cunningham and Gallion at first hid $50 million of the settlement from Mills; Mills himself was sued by his secretary, who unsuccessfully claimed she had been stiffed of a promised Erin-Brockovich-sized share for her role in thinking up the business strategy of advertising for pharmaceutical plaintiffs.

BGS

Wyeth's Profit Likely Rising as Fen-Phen Payments Nearing End

Article in the Washington Post -- Wyeth shares could rise more than 20 pct: Barron's, from Reuters.  Here's an excerpt: "The newspaper said Wyeth may also be near the end of incurring costs for its discontinued fen-phen diet drug, following a nationwide settlement and $21 billion of charges."

BGS